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It is said that the equity holders of a levered firm can be thought of as holding a call option on the firm's assets. Explain what is meant by this statement.
One thing put-call parity tells us is that given any three of a stock, a call, a put, and a T-bill, the fourth can be synthesized or replicated using the other three. For example, how can one replicate a share of stock using a call, a put, and a T-bill?
An insurance policy is considered analogous to an option. From a policyholder's perspective, what type of option is an insurance policy? Why?
Explain Valuation of perpetual Bond and In what respect is a perpetual bond similar to a non-growth common stock
If the interest rate is 9 percent compounded monthly, what is the PV for both the options?
On 3/5/2012, you entered into a semiannual interest rate swap contract,
After taking a closer look at numbers and doing the financial analysis, you start to think more strategically, and in a broader context, you anticipate what the CFO would ask.
Assume that the Treasury bill rate were 6 percent rather than 4 percent. Suppose that the expected return on the market stays at 10%. Use the betas in Table 8.2 .
What is a FAIR plan? How does it work? If underwriting losses of FAIR plans are passed on to other insureds, is this mandated subsidization? Explain your conclusions.
The bonds mature in 17 years, have a face value of $892, and sell at 102 of par. What is the capital structure weight of the common stock?
A Company has an issue of $1000 par value bonds with a 12% stated interest rate outstanding. The issue pays interest yearly and has ten years remaining to its maturity date.
Q1. The price of a stock is currently $30. The price of a twoyear European call option on the stock with a strikeprice of $40 is $15 and the price of a twoyear European put option on the stock with a strike price of $20 is $12.
The Rufus Corporarion has 125 million shares outstanding and analyst expect Rufus to have earnings of $500 million this year. What is the value of a share of Rufus stock?
Calculation of net present value of a project with annuity and What is the project's NPV
Investors expect a corporation to announce a 10% increase in earnings, but instead the firm announces a 1% increase. If the market is semistrong-form efficient,
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